This article, which is part of a symposium on the economics of REDD, identifies three common settings for forest loss involving different types of decision-making agents that operate under different markets and institutions. That suggests using different theoretical frameworks for these three settings, which in turn generates different predictions concerning policies’ impacts. The first model, “producer profit maximization given market integration,” has been applied to many private decisions about the best locations for profitable land uses, such as agriculture and forest. Its predictions have been widely studied empirically, beginning no later than von Thunen (1826). The second model, “rural household optimization given incomplete markets and household heterogeneity,” has been applied to more isolated settings featuring high transactions costs that yield incomplete integration of households in input and output markets. Its policy impact predictions have been tested with surveys at household and village levels. In the third model, “public optimization given production and corruption responses by private firms,” a public agency determines public forest access by balancing public goods, public revenue needs, and private rents to award concessions. There is potential for corruption, and the decisions may be affected by decentralization. This model’s predictions can be tested using observed policies. We find that past policies rarely addressed the incentives driving forest loss effectively. This helps to explain the limited impact of past policies on deforestation and forest degradation. It also suggests directions for the design of future policies. In sum, the theory and the evidence suggest that REDD success requires an understanding of all the incentives that drive forest loss, so that domestic policy can be tailored to specific settings (i.e., relevant agents and institutions).

We examine theoretically the emergence of participatory comanagement agreements that share between state and user the management of resources and the benefits from use. Going beyond user-user interactions, our state-user model addresses a critical question—when will comanagement arise?— in order to consider the right baseline for evaluating comanagement’s forest and welfare impacts. We then compare our model’s hypotheses concerning de facto rights, negotiated agreements, and transfers (all endogenous) with community-level data including observed agreements in a protected Indonesian forest. These unique data could refute the model, despite being limited, but instead offer support.

We consider health and environmental quality in developing countries, where limited resources constrain behaviors that combat enormously burdensome health challenges. We focus on four huge challenges that are preventable (i.e., are resolved in rich countries). We distinguish them as special cases in a general model of household behavior, which is critical and depends on risk information. Simply informing households may achieve a lot in the simplest challenge (groundwater arsenic); yet, for the three infectious situations discussed (respiratory, diarrhea, and malaria), community coordination and public provision may also be necessary. More generally, social interactions may justify additional policies. For each situation, we discuss the valuation of private spillovers (i.e., externalities) and evaluation of public policies to reduce environmental risks and spillovers. Finally, we reflect on open questions in our model and knowledge gaps in the empirical literature including the challenges of scaling up and climate change.

This paper provides a theoretical explanation for the widely debated empirical finding of “Environmental Kuznets Curves”, i.e., U-shaped relationships between per-capita income and indicators of environmental quality. We present a household-production model in which the degradation of environmental quality is a by-product of household activities. Households can not directly purchase environmental quality, but can reduce degradation by substituting more expensive cleaner inputs to production for less costly dirty inputs. If environmental quality is a normal good, one expects substitution towards the less polluting inputs, so that increases in income will increase the quality of the environment. It is shown that this only holds for middle income households. Poorer households spend all income on dirty inputs. When they buy more, as income rises, the pollution also rises. they do not want to substitute, as this would reduce consumption of non-environmental services for environmental amenities that are already abundant. Thus, as income rises from low to middle levels, a U shape can result. Yet an N shape might eventually result, as richer households spend all income on clean inputs. Further substitution possibilities are exhausted. Thus as income rises again pollution rises and environmental quality falls.

Will economic growth inevitably degrade the environment, throughout development? We present a household-level framework emphasising the trade-off between consumption that causes pollution and pollution-reducing abatement. Our model provides a simple explanation for upward-turning, non-monotonic paths of environmental quality during economic growth. Its innovation yields sufficient conditions that simultaneously address preferences and technologies. With standard preferences, an asymmetric endowment (i.e., at zero income, consumption is also zero but environmental quality is positive) leads low-income households not to abate, and further this condition is sufficient for an environmental Kuznets curve (EKC) for a wide range of abatement technologies. Without such an endowment, however, even strong economies of scale in abatement are, on their own, insufficient for an EKC

Rich-poor interactions complicate the search for a stable Environmental Kuznets Curve (an ‘inverted U’ relationship between income per-capita and environmental degradation). We show that aid from richer to poorer countries to support investments in environment, in either of two forms, alters the income-environment relationships that otherwise exist, lowering levels of degradation in the poorer countries conditional upon their incomes. Yet even with environmental aid, in our model environmental quality eventually falls as economic growth continues, although ongoing innovation could change that conclusion. In light of this result, we show that subsidies to clean goods, one form of technological-transfer aid programme, dominate income transfers as environmental aid policy by the rich. Given that aid matters, we then show that when rich countries degrade the environment, a perverse effect exists: when an aid-giving country becomes richer, it gives less aid to the poor country. This is stronger when that degradation is durable, that is, when consumption and degradation by the rich country in the past has durable effects upon the environment.

Concerns about frequent and harmful medical errors have led policy makers to advocate the creation of a system for medical error reporting. Health providers, fearing that reported information about errors would be used against them under the current medical malpractice system, have been reluctant to participate in such reporting systems.We propose a re-design of the malpractice system – one in which penalties are a function of the health provider’s reporting efforts – to overcome this incentive problem.We also consider some alternatives to this mechanism that address two important ways in which reporting effort may not be observable: hospitals may have interests distinct from individual physicians and may not be able to observe their reporting efforts, and a regulatory agency or a court may not be able to adequately observe reporting efforts by a provider.

Many firms conduct “environmental audits” to test compliance with a complex array of environmental regulations. Commentators suggest, however, that self-auditing is not as common as it should be, because firms fear that what they find will be used against them. This article analyzes self-auditing as a two-tiered incentive problem involving incentives both to test for and to effect compliance. After demonstrating the inadequacy of conventional remedies, we show that incentives can be properly aligned by conditioning fines on firms’ investigative effort. In practice, however, the regulator may not be able to observe such effort. Accordingly, we propose and evaluate the use of three observable proxies for self-investigation: the manner in which the regulator detected the violation; the firm’s own disclosure of violations; and the firm’s observed corrective actions. Each method has its own efficiency benefits and informational requirements, and each is distinct from EPA’s current audit policy.